Reviewer in Marketing Management

Chapter Two: Developing Marketing Strategies and Plans

Marketing and Customer Value

● The Value Delivery Process
○ Choosing the Value — represents the “homework” marketing must do before any product exists.
Marketers must segment the market, select the appropriate target, and develop the offering’s
value positioning. The formula “segmentation, targeting, positioning (STP)” is the essence of
strategic marketing.
○ Providing the Value — Marketing must determine specific product features, prices, and
distribution.
○ Communicating the Value — by utilizing the sales force, Internet, advertising, and any other
communication tools to announce and promote the product.

● The Value Chain — A tool for identifying ways to create more customer value
○ Every firm is a synthesis of activities performed to design, produce, market, deliver, and support
its product
○ Core Business Processes
■ Market-sensing process — All the activities in gathering and acting upon information
about the market
■ New-offering realization process — All the activities in researching, developing, and
launching new high-quality offerings quickly and within budget
■ Customer acquisition process — All the activities in defining target markets and
prospecting for new customers
■ Customer relationship management process — All the activities in building deeper
understanding, relationships, and offerings to individual customers
■ Fulfillment management process — All the activities in receiving and approving orders,
shipping the goods on time, and collecting payment

● Core Competencies
○ A source of competitive advantage and makes a significant contribution to perceived customer
benefits
○ Applications in a wide variety of markets
○ Difficult for competitors to imitate
○ Maximizing Core Competencies
■ (Re)define the business concept
■ (Re)shaping the business scope
■ (Re)positioning the company’s brand identity
● The Central Role of Strategic Planning
○ Managing the businesses as an investment portfolio
○ Assessing the market’s growth rate and the company’s position in that market
○ Establishing a strategy
Marketing Plan
● The central instrument for directing and coordinating the marketing effort
○ Strategic — lays out the target markets and the firm’s value proposition, based on an analysis of
the best market opportunities.
○ Tactical — specifies the marketing tactics, including product features, promotion,
merchandising, pricing, sales channels, and service.
Corporate and Division Strategic Planning
● Defining the corporate mission
● Establishing strategic business units
● Assigning resources to each strategic business unit
● Assessing growth opportunities
Defining the Corporate Mission
● What is our business?
● Who is the customer?
1
 ● What is of value to the customer?
● What will our business be?
● What should our business be?

Product Orientation VS Market Orientation

Company Product Market

Missouri-Pacific We run a We are a people-

Railroad railroad and-goods mover

Xerox We make We improve office

copying productivity
equipment

Standard Oil We sell We supply energy

gasoline

Columbia We make We market

Pictures movies entertainment

Good Mission Statements

● Focus on a limited number of goals
● Stress the company’s major policies and values
● Define the major competitive spheres within which the company will operate
● Take a long-term view
● Are as short, memorable, and meaningful as possible
Establishing Strategic Business Units
● A single business or collection of related businesses
● Has its own set of competitors
● Has a leader responsible for strategic planning and profitability
Assigning Resources to Each SBU
● Management must decide how to allocate corporate resources to each SBU
○ Portfolio-planning models — Portfolio-planning models like these have fallen out of favor as
oversimplified and subjective.
○ Shareholder/market value analysis — These value calculations assess the potential of a business
based on growth opportunities from global expansion, repositioning or retargeting, and strategic
outsourcing
Assessing Growth Opportunities
● Intensive Growth — Corporate management’s first course of action should be a review of opportunities
for improving existing businesses.
● Integrative Growth — A business can increase sales and profits through backward, for- ward, or
horizontal integration within its industry.
● Diversification Growth — Diversification growth makes sense when good opportunities exist outside
the present businesses—the industry is highly attractive and the company has the right mix of business
strengths to succeed.
● Downsizing and Divesting Older Business — Companies must carefully prune, harvest, or divest tired
old businesses to release needed resources for other uses and reduce costs.
Organization and Organizational Culture
● A company’s organization consists of its structures, policies, and corporate culture, all of which can
become dysfunctional in a rapidly changing business environment
● Corporate culture: “The shared experiences, stories, beliefs, and norms that characterize an
organization”
Marketing Innovation
● Innovation in marketing is critical
● Employees can challenge company orthodoxy and stimulate new ideas
● Firms develop strategy by choosing their view of the future
2
 ○ Scenario analysis — which develops possible representations of a firm’s possible future using
assumptions about forces driving the market and different uncertainties.
SWOT Analysis
● The overall evaluation of a company’s strengths, weaknesses, opportunities, and threats is called SWOT
analysis. It’s a way of monitoring the external and internal marketing environment.
External Environment (Opportunity and Threat) Analysis
● A business unit must monitor key macroenvironment forces and significant microenvironment factors
that affect its ability to earn profits. It should set up a marketing intelligence system to track trends and
important developments and any related opportunities and threats.
○ Marketing opportunity: an area of buyer need and interest that a company has a high probability
of profitably satisfying.
○ Environmental threat: challenge posed by an unfavorable trend or development that, in the
absence of defensive marketing action, would lead to lower sales or profit
Market Opportunity Analysis (MOA)
● Can we articulate the benefits convincingly to a defined target market(s)?
● Can we locate the target market(s) and reach them with cost-effective media and trade channels?
● Does our company possess or have access to the critical capabilities and resources we need to deliver the
customer benefits?
● Can we deliver the benefits better than any actual or potential competitors?
● Will the financial rate of return meet or exceed our required threshold for investment?
Internal Environment (Strengths and Weaknesses) Analysis
● It's one thing to find attractive opportunities, and another to be able to take advantage of them. Each
business needs to evaluate its internal strengths and weaknesses.
Goal Formulation (MBO)
● Unit’s objectives must be arranged hierarchically — The business unit’s key objective for the period
may be to increase the rate of return on investment. Managers can increase profit by increasing revenue
and reducing expenses. They can grow revenue, in turn, by increasing market share and prices.
● Objectives should be quantitative — The objective “to increase the return on investment (ROI)” is better
stated as the goal “to increase ROI to 15 percent within two years.”
● Goals should be realistic — Goals should arise from an analysis of the business unit’s opportunities and
strengths, not from wishful thinking.
● Objectives must be consistent — It’s not possible to maximize sales and profits simultaneously.
Strategic Formulation
● Strategy is a game plan for getting there. Every business must design a strategy for achieving its goals,
consisting of a marketing strategy and a compatible technology strategy and sourcing strategy.
● Porter’s Generic Strategies — Michael Porter has pro- posed three generic strategies that provide a good
starting point for strategic thinking: overall cost leadership, differentiation, and focus.
○ Overall Cost Leadership — Firms work to achieve the lowest produc- tion and distribution costs
so they can underprice competitors and win market share. They need less skill in marketing. The
problem is that other firms will usually compete with still-lower costs and hurt the firm that
rested its whole future on cost.
○ Differentiation — The business concentrates on achieving supe- rior performance in an
important customer benefit area valued by a large part of the market.
○ Focus — The business focuses on one or more narrow market segments, gets to know them
intimately, and pursues either cost leadership or differentiation within the target segment.
● Strategic Alliances — Even giant companies—AT&T, Philips, and Nokia—often cannot achieve
leadership, either nationally or globally, without forming alliances with domestic or multi- national
companies that complement or leverage their capabilities and resources.
○ Product or Service Alliance — One company licenses another to produce its product, or two
companies jointly market their complementary products or a new product.
○ Promotional Alliance — One company agrees to carry a promotion for another company’s
product or service.
○ Logistics Alliance — One company offers logistical services for another company’s product.
○ Pricing Collaboration — One or more companies join in a special pricing collaboration.

3
Program Formulation and Implementation
● McKinsey’s Elements of Success
○ Strategy, structure, and systems — hardware of success
○ Style — means company employees share a common way of thinking and behaving.
○ Skills — means employees have the skills needed to carry out the company’s strategy.
○ Staffing — means the company has hired able people, trained them well, and assigned them to
the right jobs.
○ Shared Values — means employees share the same guiding values. When these elements are
present, companies are usually more successful at strategy implementation.
Feedback and Control
● Peter Drucker: it is more important to “do the right thing”—to be effective—than “to do things right”—
to be efficient
● The most successful companies, however, excel at both
Marketing Plan Content
● Executive summary and Table of contents — The marketing plan should open with a table of contents
and brief summary for senior management of the main goals and recommendations.
● Situation analysis — This section presents relevant background data on sales, costs, the market,
competitors, and the various forces in the macroenvironment. How do we define the market, how big is
it, and how fast is it growing? What are the relevant trends and critical issues? Firms
● will use all this information to carry out a SWOT analysis.
● Marketing strategy — Here the marketing manager defines the mission, marketing and financial
objectives, and needs the market offering is intended to satisfy as well as its competitive positioning. All
this requires inputs from other areas, such as purchasing, manufacturing, sales, finance, and human
resources.
● Marketing tactics
● Financial projections — Financial projections include a sales forecast, an expense forecast, and a break-
even analysis.
● Implementation controls

Evaluating a Marketing Plan

● Is the plan simple/succinct?
● Is the plan complete?
● Is the plan specific?
● Is the plan realistic?

Other Marketing Plan Content

● Marketing research
● Specifications for internal and external relationships
● Action plans and schedules

Chapter Three: Collecting Information and Forecasting

Components of a Modern Marketing Information System (MIS)
● Internal Company Records — to spot important opportunities and potential problems, marketing
managers rely on internal reports of orders, sales, prices, costs, inventory levels, receivables, and
payables.
● Marketing Intelligence Activities — is a set of procedures and sources that managers use to obtain
everyday information about developments in the marketing environment.
● Marketing Research
Internal Records
● Internal reports of orders
● Sales
● Prices
● Costs
● Inventory levels
● Receivables
● Payables
4
Marketing Intelligence
● Marketing Intelligence System — a set of procedures and sources that managers use to obtain everyday
information about developments in the marketing environment.
Improving Marketing Intelligence
● Motivate sales force to report new developments — The company must “sell” its sales force on their
importance as intelligence gatherers.
● Motivate intermediaries to pass along intelligence — Marketing intermediaries are often closer to the
customer and competition and can of- fer helpful insights.
● Hire external experts to collect intelligence — Many companies hire specialists to gather marketing
intelligence.
● Network internally and externally — The firm can purchase competitors’ products, attend open houses
and trade shows, read competitors’ published reports, attend stockholders’ meet- ings, talk to employees,
collect competitors’ ads, consult with suppliers, and look up news sto- ries about competitors.
● Set up a customer advisory panel — Members of advisory panels might include the company’s largest,
most outspoken, most sophisticated, or most representative customers.
● Take advantage of government-related data
● Purchase information from outside research vendors
● Collect marketing intelligence on Internet
Marketing Intelligence on the Internet
● Independent customer goods and service review forums
● Distributor or sales agent feedback sites
● Combo sites offering customer reviews and expert opinions
● Customer complaint sites
● Public blogs
Communicating and Acting on Marketing Intelligence
● The competitive intelligence function works best when it is closely coordinated with the decision-
making process
○ Given the speed of the Internet, it is important to act quickly on information gleaned online
Analyzing the MacroEnvironment
● Needs and Trends — Enterprising individuals and companies manage to create new solutions to unmet
needs.
○ Fad — is “unpredictable, short-lived, and without social, economic, and political significance.”
○ Trends — is more predictable and durable than a fad; trends reveal the shape of the future and
can provide strategic direction. A trend toward health and nutrition awareness has brought
increased government regulation and negative publicity for firms seen as peddling unhealthy
food.
○ Megatrend — “is a large social, economic, political, and technological change [that] is slow to
form, and once in place, influences us for some time—between seven and ten years, or longer.”
Identifying the Major Forces
● Six major forces in the broad environment
○ Demographic
■ Worldwide Population Growth
■ Population Age Mix
■ Ethnic and Other Markets
■ Educational Groups
■ Household Patterns
○ Sociocultural
■ Views of society
■ Views of nature
■ Views of the universe
■ Views of organizations
■ Views of others
■ Views of ourselves
■ Core Cultural Values — Values are passed from parents to children and reinforced by
social institutions
■ Subcultures — Groups with shared values, beliefs, preferences, and behaviors emerging
from their special life experiences or circumstances
○ Natural

5
 ■ Corporate Environmentalism — Opportunities await those who can reconcile prosperity
with environmental protection
○ Technological
■ Accelerating pace of change
■ Unlimited opportunities for innovation
■ Varying R&D budgets
■ Increased regulation of technological change
○ Economic
■ Consumer Psychology
■ Income Distribution
■ Income, Savings, Debt, Credit
○ Income Distribution
■ Subsistence economies
■ Raw-material-exporting economies
■ Industrializing economies
■ Industrial economies
■ Very low incomes
■ Mostly low incomes
■ Very low, very high incomes
■ Low, medium, high incomes
■ Mostly medium incomes
○ Political-legal
■ Laws
■ Government Agencies
■ Pressure Groups
Forecasting and Demand Measurement
● Market demand measures
○ Potential Market — is the set of consumers with a sufficient level of interest in a market
offer. However, their interest is not enough to define a market unless they also have
sufficient income and access to the product.
○ Available Market — is the set of consumers who have interest, income, and access to a
particular offer.
○ Target Market — is the part of the qualified available market the company decides to
pursue.
○ Penetrated Market — is the set of consumers who are buying the company’s product.
Market Demand Vocabulary
● Market Share — is a higher level of selective demand for a company’s product.
● Market-penetration index — It pays to compare the current and potential levels of market demand.
● Share-penetration index — A low index indicates substantial growth potential for all the firms. A high
index suggests it will be expensive to attract the few remaining prospects. Generally, price competition
increases and margins fall when the market-penetration index is already high.
Demand Measurement Vocabulary
● Market Forecast — Only one level of industry marketing expenditure will actually occur.
● Market Potential — Is the limit approached by market demand as industry marketing expenditures
approach infinity for a given marketing environment.
● Company Demand — Is the company’s estimated share of market demand at alternative levels of
company marketing effort in a given time period.
● Company Sales Forecast — Is the expected level of company sales based on a chosen marketing plan
and an assumed marketing environment.
● Company Sales Potential — is the sales limit approached by company demand as company marketing
effort increases relative to that of competitors.
Estimating Current Demand
● Total Market Potential — Is the maximum sales available to all firms in an industry during a given
period, under a given level of industry marketing effort and environmental conditions.
○ Chain-ratio method — A common way to estimate total market potential is to multiply the
potential number of buyers by the average quantity each purchases and then by the price.
● Area Market Potential — Because companies must allocate their marketing budget optimally among
their best territories, they need to estimate the market potential of different cities, states, and nations.
○ Market-buildup method — Used primarily by business marketers. The market-buildup method
calls for identifying all the potential buyers in each market and estimating their potential
purchases.
6
 ○ Multiple-factor index method — Used primarily by consumer marketers. Like business
marketers, consumer companies also need to estimate area market potentials, but because their
customers are too numerous to list, they commonly use a straightforward index.
● Industry Sales and Market Share — This means identifying competitors and estimating their sales. The
industry trade association will often collect and publish total industry sales, although it usually does not
list individual company sales separately. Another way to estimate sales is to buy reports from a
marketing research firm that audits total sales and brand sales.
Estimating Future Demand
● Survey of buyers’ intentions
○ Forecasting and purchase probability scale — Forecasting is the art of anticipating what buyers
are likely to do under a given set of conditions. For major consumer durables such as appliances,
research organizations conduct periodic surveys of consumer buying intentions, ask questions.
● Composite of sales force opinions — When buyer interviewing is impractical, the company may ask its
sales representatives to estimate their future sales.
● Expert opinion — Companies can also obtain forecasts from experts, including dealers, distributors,
suppliers, marketing consultants, and trade associations.
● Past-sales analysis — Firms can develop sales forecasts on the basis of past sales.
● Market-test method — When buyers don’t plan their purchases carefully, or experts are unavailable or
unreliable, a direct-market test can help forecast new-product sales or established product sales in a new
distribution channel or territory.

Chapter Four: Conducting Marketing Research

The Scope of Marketing Research
● American Marketing Association
○ Marketing research is the function that links the consumer, customer, and public to the marketer
through information—information used to identify and define marketing opportunities and
problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and
improve understanding of marketing as a process.
○ Marketing research specifies the information required to address these issues, designs the method
for collecting information, manages and implements the data collection process, analyzes the
results, and communicates the findings and their implications.
● Importance of marketing insights
○ Generating insights (how and why we observe certain effects in the marketplace)
○ Good marketing insights often form the basis of successful marketing programs.
● Who does Marketing Research?
○ Marketing departments in big firms
○ Everyone at small firms
○ Syndicated-service research firms — These firms gather consumer and trade information, which
they sell for a fee
○ Custom marketing research firms — These firms are hired to carry out specific projects. They
design the study and report the findings.
○ Specialty-line marketing research firms — These firms provide specialized research services.
● Research conducted at small companies
○ Engage students/professors — Companies such as American Express, Booz Allen Hamilton, GE,
Hilton Hotels, IBM, Mars, Price Chopper, and Whirlpool engage in “crowdcasting” and are
sponsors of competitions such as the Innovation Challenge, where top MBA students compete in
teams. The payoff to the students is experi- ence and visibility; the payoff to the companies is a
fresh sets of eyes to solve problems at a fraction of what consultants would charge.
○ Use Internet — A company can collect considerable information at very little cost by examining
competitors’ Web sites, monitoring chat rooms, and accessing published data.
○ Checking out rivals — Many small businesses, such as restaurants, hotels, or specialty retailers,
routinely visit competitors to learn about changes they have made.
○ Tap partner expertise — Marketing research firms, ad agencies, distributors, and other marketing
partners may be able to share relevant market knowledge they have accumulated. Those partners
targeting small or medium-sized businesses may be especially helpful.
○ Tap employee creativity
● Overcoming Barriers to the Use of Marketing Research
○ Many companies still fail to use it sufficiently or correctly.
○ Companies may not understand what it is capable of or provide the researcher the right problem
definition and information from which to work. They may also have unrealistic expectations
about what researchers can offer.

7
The Marketing Research Process
● Step One
○ Define the problem
○ Define the decision alternatives
○ Define the research objectives
● Step Two
○ Develop the Research Plan
■ Data sources
● Primary data — are data freshly gathered for a specific purpose or project.
● Secondary data — are data that were collected for another purpose and already
exist somewhere.
■ Research approaches
● Observational research — Researchers can gather fresh data by observing
unobtrusively as customers shop or consume products. Ethnographic research is a
particular observational research approach that uses concepts and tools from
anthropology and other social science disciplines to provide deep cultural
understanding of how people live and work.
● Focus group research — A focus group is a gathering of 6 to 10 people carefully
selected for demographic, psychographic, or other considerations and convened to
discuss various topics at length for a small payment.
● Survey research — Companies undertake surveys to assess people’s knowledge,
beliefs, preferences, and satisfaction and to measure these magnitudes in the
general population.
● Behavioral research — Customers leave traces of their purchasing behavior in
store scanning data, catalog purchases, and customer databases.
● Experiential Research — The most scientifically valid research is experimental
research, designed to capture cause-and-effect relationships by eliminating
competing explanations of the observed findings.
■ Research instruments
● Questionnaires — A questionnaire consists of a set of questions presented to
respondents. Closed-end questions specify all the possible answers, and the
responses are easier to interpret and tabulate while open-end questions allow
respondents to answer in their own words.
● Qualitative measures — Qualitative research techniques are relatively
unstructured measurement approaches that permit a range of possible responses.
○ Word association — Ask subjects what words come to mind when they
hear the brand’s name.
○ Projective techniques—Give people an incomplete stimulus and ask them
to complete it, or give them an ambiguous stimulus and ask them to make
sense of it.
○ Visualization—Visualization requires people to create a collage from
magazine photos or drawings to depict their perceptions.
○ Brand personification—Ask subjects what kind of person they think of
when the brand is mentioned
○ Laddering—A series of increasingly more specific “why” questions can
reveal consumer moti- vation and consumers’ deeper, more abstract goals.
● Technological devices
○ Galvanometer
○ Tachistoscope
○ Eye-tracking
○ Facial detection
○ Skin sensors
○ Brain wave scanners
○ Audiometer
○ GPS
● Sampling plan
○ Sampling unit — Whom should we survey?
○ Sample size — How many people should we survey?
○ Sampling procedure — how should we choose the respondents?
● Contact methods
○ Mail — The mail questionnaire is one way to reach people who would not
give personal interviews or whose responses might be biased or distorted
by the interviewers.

8
 ○ Telephone — Telephone interviewing is a good method for gathering
information quickly; the interviewer is also able to clarify questions if
respondents do not understand them.
○ Personal — Personal interviewing is the most versatile method. The
interviewer can ask more questions and record additional observations
about the respondent, such as dress and body language.
○ Online — The Internet offers many ways to do research. A company can
embed a questionnaire on its web site and offer an incentive for
answering, or it can place a banner on a frequently visited site, inviting
people to answer questions and possibly win a prize.
● Online Research
○ Advantages: Inexpensive, Expansive, Fast, Honest, Thoughtful, Versatile
○ Disadvantages: Small, Skewed, Excessive turnover, Technological
problems, Technological inconsistencies
● Step 3: Collect the Information
○ The data collection phase of marketing research is generally the most expensive and error-prone.
Some respondents will be away from home, offline, or otherwise inaccessible; they must be
contacted again or replaced. Others will refuse to cooperate or will give biased or dishonest
answers.
● Step 4: Analyze the Information
○ The fourth step in the process is to extract findings by tabulating the data and developing
summary measures. The researchers now compute averages and measures of dispersion for the
major variables and apply some advanced statistical techniques and decision models in the hope
of discovering additional findings. They may test different hypotheses and theories, applying
sensitivity analysis to test assumptions and the strength of the conclusions.
● Step 5: Present the Findings
○ Researchers are increasingly asked to play a proactive, consulting role in translating data and
information into insights and recommendations for management.
● Step 6: Make the Decision
Good Marketing Research

Measuring Marketing Productivity

● Marketing metrics — measures that help marketers quantify, compare, and interpret performance
● Marketing-mix modeling — to estimate causal relationships and measure how marketing activity affects
outcomes
○ analyzes data from a variety of sources, such as retailer scanner data, company shipment data,
pricing, media, and promotion spending data, to understand more precisely the effects of specific
marketing activities
● Marketing dashboards — are a structured way to disseminate the insights gleaned from these two
approaches.
○ “a concise set of interconnected performance drivers to be viewed in common throughout the
organization.”
9
 ○ Customer-performance scorecard — records how well the company is doing year after year on
such customer-based measures. Management should set target goals for each measure and take
action when results get out of bounds.
○ Stakeholder-performance scorecard — tracks the satisfaction of various constituencies who have
a critical interest in and impact on the company’s performance: employees, suppliers, banks,
distributors, retailers, and stockholders.

Chapter Six: Analyzing Consumer Markets

What Influences Consumer Behavior?

● Consumer behavior
○ The study of how individuals, groups, and organizations select, buy, use, and dispose of goods,
services, ideas, or experiences to satisfy their needs and wants
○ Influenced by cultural, social, and personal factors
● Cultural factors
○ Culture — is the fundamental determinant of a person’s wants and behavior.
○ Subcultures — Each culture consists of smaller subcultures that provide more specific
identification and socialization for their members. Subcultures include nationalities, religions,
racial groups, and geographic regions.
○ Social classes — Virtually all human societies exhibit social stratification, most often in the form
of social classes, relatively homogeneous and enduring divisions in a society, hierarchically
ordered and with members who share similar values, interests, and behavior. One classic
depiction of social classes in the United States defined seven ascending levels: (1) lower lowers,
(2) upper lowers, (3) working class, (4) middle class, (5) upper middles, (6) lower uppers, and
(7) upper uppers.
● Social factors
○ Reference Group — are all the groups that have a direct (face- to-face) or indirect influence on
their attitudes or behavior.
■ Membership groups —Groups having a direct influence are called membership groups.
● Primary — with whom the person interacts fairly continuously and informally,
such as family, friends, neighbors, and coworkers.
● Secondary — such as religious, professional, and trade-union groups, which tend
to be more formal and require less continuous interaction.
■ Aspirational groups — are those a person hopes to join
■ Dissociative groups — are those whose values or behavior an individual rejects.
■ Opinion leader — is the person who offers informal advice or information about a
specific product or product category, such as which of several brands is best or how a
particular product may be used.
○ Cliques
○ Family — The family is the most important consumer buying organization in society, and family
members constitute the most influential primary reference group.
■ Family of orientation — consists of parents and siblings.
■ Family of procreation —namely, the person’s spouse and children.
○ Roles and Status — A role consists of the activities a person is expected to perform. Each role in
turn connotes a status.
● Personal factors
○ Age/stage in lifecycle — Our taste in food, clothes, furniture, and recreation is often related to
our age. Consumption is also shaped by the family life cycle and the number, age, and gender of
people in the household at any point in time.
○ Occupation and economic circumstances — Occupation also influences consumption patterns.
Occupation also influences consumption patterns. Marketers try to identify the occupational
groups that have above-average interest in their products and services and even tailor products
for certain occupational groups
○ Personality and self-concept — personality, we mean a set of distinguishing human
psychological traits that lead to relatively consistent and enduring responses to environmental
stimuli (including buying behavior). We often describe personality in terms of such traits as self-
confidence, dominance, autonomy, deference, sociability, defensiveness, and adaptability.
○ Lifestyle and values — People from the same subculture, social class, and occupation may lead
quite different lifestyles. A lifestyle is a person’s pattern of living in the world as expressed in
activities, interests, and opinions. It portrays the “whole person” interacting with his or her
environment.
Key Psychological Processes
10
 ● Motivation — A need becomes a motive when it is aroused to a sufficient level of intensity to drive us to
act
○ Freud’s Theory — Behavior is guided by subconscious motivations
○ Maslow’s Hierarchy of Needs — Behavior is driven by
○ lowest, unmet need
○ Herzberg’s Two-Factor Theory — Behavior is guided by dissatisfiers and satisfiers
● Perception — The process by which we select, organize, and interpret information inputs to create a
meaningful picture of the world
○ Selective attention — Attention is the allocation of processing capacity to some stimulus.
Voluntary attention is something purposeful; involuntary attention is grabbed by someone or
something.
○ Selective distortion — Selective distortion is the tendency to interpret information in a way that
fits our preconceptions. Consumers will often distort information to be consistent with prior
brand and product beliefs and expectations.
○ Selective retention — Because of selective retention, we’re likely to remember good points about
a product we like and forget good points about competing products.
○ Subliminal perception — selective perception mechanisms require consumers’ active
engagement and thought. A topic that has fascinated armchair marketers for ages is subliminal
perception. They argue that marketers embed covert, subliminal messages in ads or packaging.
● Learning
○ Induces changes in our behavior arising from experience
○ Drive and cues — A drive is a strong internal stimulus impelling action. Cues are minor stimuli
that determine when, where, and how a person responds.
○ Generalization and discrimination — A countertendency to gen- eralization is discrimination.
Discrimination means we have learned to recognize differences in sets of similar stimuli and can
adjust our responses accordingly.
● Emotions — Many different kinds of emotions can be linked to brands
● Memory
○ Short -term memory (STM)—a temporary and lim- ited repository of information—and Long-
term memory (LTM)—a more permanent, essentially unlimited repository long-term memory
○ Associative network memory model — the associative network memory model views LTM as a
set of nodes and links.
○ Brand associations — consist of all brand-related thoughts, feelings, perceptions, images,
experiences, beliefs, attitudes, and so on that become linked to the brand node.
○ Memory encoding — describes how and where information gets into memory.
○ Memory retrieval — is the way information gets out of memory.
Model of Consumer Behavior

The Buying Decision Process

● The consumer typically passes through five stages
○ Problem recognition — The buyer recognizes a problem/need triggered by internal/external
stimuli
○ Information search
■ Personal sources — Family, friends, neighbors, acquaintances
■ Commercial sources — Advertising, Websites, salespersons, dealers, packaging,
displays
■ Public sources — Mass Media, consumer-rating organizations
■ Experiential sources — Handling, examining, using the product
○ Evaluation of alternatives

11
 ■ Expectancy-value model — The expectancy-value model of attitude formation posits that
consumers evaluate products and services by combining their brand beliefs—the
positives and negatives—according to importance.
○ Purchase decision
■ Compensatory — The expectancy-value model is a compensatory model, in that
perceived good things about a product can help to overcome perceived bad things. But
consumers often take “mental shortcuts” called heuristics or rules of thumb in the
decision process.
■ Noncompensatory models — With noncompensatory models of consumer choice,
positive and negative attribute considera- tions don’t necessarily net out.
■ Using the conjunctive heuristic, the consumer sets a minimum acceptable cutoff level for
each at- tribute and chooses the first alternative that meets the minimum standard for all
attributes.
■ With the lexicographic heuristic, the consumer chooses the best brand on the basis of its
per- ceived most important attribute.
■ Using the elimination-by-aspects heuristic, the consumer compares brands on an attribute
selected probabilistically—where the probability of choosing an attribute is positively
related
■ to its importance—and eliminates brands that do not meet minimum acceptable cutoffs.
■ Intervening Factors

■ Types of perceived risk:

● Physical risk — The product poses a threat to the physical well-being or health of
the user or others.
● financial risk — The product is not worth the price paid.
● social risk — The product results in embarrassment in front of others.
● psychological risk — The product affects the mental well-being of the user.
● time risk — The failure of the product results in an opportunity cost of finding
another satisfactory product.
● functional risk — The product does not perform to expectations.
○ Postpurchase behavior
■ Post Purchase satisfaction — Satisfaction is a function of the closeness between
expectations and the product’s perceived performance.
■ Post Purchase actions — A satisfied consumer is more likely to purchase the product
again and will also tend to say good things about the brand to others. Dissatisfied
consumers may abandon or return the product. They may seek information that confirms
its high value.
■ Postpurchase uses and disposal — Marketers should also monitor how buyers use and
dispose of the product.
Moderating Effects on Consumer Decision Making
● Low-involvement Consumer Decision Making — The expectancy-value model assumes a high level of
consumer involvement, or engagement and active processing the consumer undertakes in responding to
a marketing stimulus.

12
 ● Variety-Seeking Buying Behavior — Some buying situations are characterized by low involvement but
significant brand differences. Here consumers often do a lot of brand switching.
Behavioral Economics
● Decision Heuristics
○ Availability heuristic — Consumers base their predictions on the quickness and ease with which
a particular example of an outcome comes to mind.
○ Representativeness heuristic — Consumers base their predictions on how representative or
similar the outcome is to other examples.
○ Anchoring and adjustment heuristic — Consumers arrive at an initial judgment and then adjust it
based on additional information.
● Framing — Decision framing is the manner in which choices are presented to and seen by a decision
maker.
○ Mental accounting — refers to the way consumers code, categorize, and evaluate financial
outcomes of choices. “The tendency to categorize funds or items of value even though there is no
logical basis for the categorization, e.g., individuals often segregate their savings into separate
accounts to meet different goals even though funds from any of the accounts can be applied to
any of the goals.”

Chapter Nine: Identifying Market Segments and Targets

Bases for Segmenting Consumer Markets

● Market segment — A group of customers who share a similar set of needs and wants
Geographic Segmentation
● Geographical Units — nations, states, regions, counties, cities, or neighborhoods.
● Nielsen Claritas’ PRIZM
○ Education and affluence
○ Family life cycle
○ Urbanization
○ Race and ethnicity
○ Mobility
Demographic Segmentation — demographic segmentation, we divide the market on variables such as age,
family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and
social class.
● Age and Life-Cycle Stage — Consumer wants and abilities change with age.
● Life Stage — Life stage defines a person’s major concern, such as going through a divorce, going into a
second marriage, taking care of an older parent, deciding to cohabit with another person, deciding to buy
a new home, and so on.
● Gender — Men and women have different attitudes and behave
● differently, based partly on genetic makeup and partly on
● socialization. Women tend to be more communal-minded and men more self-expressive and goal-
directed; women tend to take in more of the data in their immediate environment and men to focus on
the part of the environment that helps them achieve a goal.
● Income — Income segmentation is a long-standing practice in such categories as automobiles, clothing,
cosmetics, financial services, and travel.
● Generation — Each generation or cohort is profoundly influenced by the times in which it grows up—
the music, movies, politics, and defining events of that period. Members share the same major cultural,
political, and economic experiences and have similar outlooks and values.
○ Millennials (Gen Y) — born between 1979 and 1994
○ Gen X — born between 1964 and 1978
○ Baby Boomers — born between 1946 and 1964
○ Silent Generation — born between 1925 and 1945
● Race and Culture — Multicultural marketing is an approach recognizing that different ethnic and
cultural segments have sufficiently different needs and wants to require targeted marketing activities,
and that a mass market approach is not refined enough for the diversity of the marketplace.
○ Hispanic Americans — The Hispanic American market holds a wide variety of subsegments,
with roughly two dozen nationalities including Cuban, Mexican, Puerto Rican, Dominican, and
other Central and South American groups, and a mix of cultures, physical types, racial
backgrounds, and aspirations.

13
 ○ Asian Americans — “Asian” refers to people having origins in any of the original peoples of the
Far East, Southeast Asia, or the Indian subcontinent.
○ African Americans — African Americans have had a significant economic, social, and cultural
impact on U.S. life, influencing inventions, art, music, sports, fashion, and literature. Like many
cultural segments, they are deeply rooted in the U.S. landscape while also proud of their heritage
and respectful of family ties.
○ LGBT
Psychographic Segmentation
● Psychographics is the science of using psychology and demographics to better understand consumers. In
psychographic segmentation, buyers are divided into different groups on the basis of
psychological/personality traits, lifestyle, or values. People within the same demographic group can
exhibit very different psychographic profiles.
● Five Examples of Psychographic Characteristics
○ Personality: Market researchers can conduct a segmentation based on personality to form a group
of people with similar personality traits. New products/services can be launched to cater to
various personalities and new features also can be developed for the analyzed personalities.
○ Lifestyle: Various resources have to be invested if multiple products are to be created for
multiple markets. But, product resources can be saved if segmentation is done on the basis of
lifestyle, product development can be made more credible.
○ Social Status: This segmentation type can be helpful for brands that have a niche product/service
to offer which will not be helpful to all social classes.
○ Activities, interests, and opinions: This psychographic segmentation is based on what activities
are the customers inclined towards, which topics are they enthusiastically interested in or what
are their opinions about specific matters.
○ Attitudes: An individual’s attitude is molded by the way he/she was raised and their cultural
background. Each prospective customer will have a different attitude which can be a variable for
psychographic segmentation.
● VALS Segmentation System
○ VALS (Values and Lifestyle Survey) is a proprietary research methodology used for
psychographic market segmentation.
○ Values and Lifestyles is an approach to market segmentation whereby consumers are segmented
into mutually exclusive groups based on their psychographics.
○ Marketing classes use this tool to determine the placement of a given product to a certain niche
in an industry.
○ VALS segmentation has been used to:
■ Identify target markets
■ Geographically locate consumers
■ Understand consumer behavior
■ Product development and improvement
■ Targeted advertising campaigns, and
■ Product positioning.
○ Dimensions of VAL
■ primary motivation (ideals, achievement, and self-expression)
■ resources (energy, self-confidence, intellectualism, novelty seeking, innovativeness,
impulsiveness, leadership, and vanity).
○ Higher Resources:
■ Innovators — Successful, sophisticated, active, “take-charge” people with high self-
esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented
products and services.
■ Thinkers — Mature, satisfied, and reflective people motivated by ideals and who value
order, knowledge, and responsibility. They seek durability, functionality, and value in
products.
■ Achievers — Successful, goal-oriented people who focus on career and family. They
favor
■ premium products that demonstrate success to their peers.
■ Experiencers — Young, enthusiastic, impulsive people who seek variety and excitement.
■ They spend a comparatively high proportion of income on fashion, entertainment, and
socializing.
○ Lower Resources
■ Believers — Conservative, conventional, and traditional people with concrete beliefs.
They pre- fer familiar, U.S.-made products and are loyal to established brands.
■ Strivers — Trendy and fun-loving people who are resource-constrained. They favor
stylish products that emulate the purchases of those with greater material wealth.

14
 ■ Makers — Practical, down-to-earth, self-sufficient people who like to work with their
hands. They seek U.S.-made products with a practical or functional purpose.
■ Survivors — Elderly, passive people concerned about change and loyal to their favorite
brands.
Behavioral Segmentation
● Marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or
response to a product
● Needs and benefits — Needs-based or benefit-based segmentation is a widely used approach because it
identifies distinct market segments with clear marketing implications.
● Decision roles
○ Initiator
○ Influencer
○ Decider
○ Buyer
○ User
User and Usage-Related Variables
● Occasions — Occasions Occasions mark a time of day, week, month, year, or other well-defined
temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions when they
develop a need, purchase a product, or use a product.
● User status — Every product has its nonusers, ex-users, potential users, first-time users, and regular
users.
● Usage rate — We can segment markets into light, medium, and heavy product users. Heavy users are
often a small slice but account for a high percentage of total consumption.
● Buyer-readiness stage — Some people are unaware of the product, some are aware, some are informed,
some are interested, some desire the product, and some intend to buy.
● Loyalty status
○ Hard-core loyals— Consumers who buy only one brand all the time
○ Split loyals— Consumers who are loyal to two or three brands
○ Shifting loyals— Consumers who shift loyalty from one brand to another
○ Switchers— Consumers who show no loyalty to any brand
○ Marketing Funnel

● Attitude — Five consumer attitudes about products are enthusiastic, positive, indifferent, negative, and
hostile.

15
 ○ Behavioral Segmentation Breakdown

How should business markets be segmented?

● Demographic
○ Industry: Which industries should we serve?
○ Company size: What size companies should we serve?
○ Location: What geographical areas should we serve?
● Operating variables
○ Technology: What customer technologies should we focus on?
○ User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?
○ Customer capabilities: Should we serve customers needing many or few services?
● Purchasing approaches
○ Purchasing-function organization: Should we serve companies with a highly centralized or
decentralized purchasing organization?
○ Power structure: Should we serve companies that are engineering dominated, financially
dominated, and so on?
○ Nature of existing relationship: Should we serve companies with which we have strong
relationships or simply go after the most desirable companies?
○ General purchasing policies: Should we serve companies that prefer leasing? Service contract?
Systems purchases? Sealed bidding?
○ Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?
● Situational factors
○ Urgency: Should we serve companies that need quick and sudden delivery or service?
○ Specific application: Should we focus on a certain application of our product rather than all
applications?
○ Size or order: Should we focus on large or small orders?
● Personal characteristics
○ Buyer-seller similarity: Should we serve companies whose people and values are similar to ours?
○ Attitude toward risk: Should we serve risk-taking or risk-avoiding customers?
○ Loyalty: Should we serve companies that show high loyalty to their suppliers?
Marketing Targeting

16
Effective Segmentation Criteria
● Measurable — The size, purchasing power, and characteristics of the segments can be measured.
● Substantial — The segments are large and profitable enough to serve. A segment should be the largest
possible homogeneous group worth going after with a tailored marketing program.
● Accessible — The segments can be effectively reached and served.
● Differentiable — The segments are conceptually distinguishable and respond differently to different
marketing-mix elements and programs.
● Actionable — Effective programs can be formulated for attracting and serving the segments.
Porter’s five forces
● Threat of intense segment rivalry—A segment is unattractive if it already contains numerous, strong, or
aggressive competitors.
● Threat of new entrants—The most attractive segment is one in which entry barriers are high and exit
barriers are low.54 Few new firms can enter the industry, and poorly performing firms can easily exit.
● Threat of substitute products—A segment is unattractive when there are actual or potential substitutes
for the product. Substitutes place a limit on prices and on profits.
● Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or
growing bargaining power.
● Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers
are able to raise prices or reduce quantity supplied.
Evaluating And Selecting the Market Segments

One-to-one marketing
● Identify your prospects and customers
● Differentiate customers in terms of their needs and value to your company
● Interact to improve your knowledge about customers’ needs and to build relationships
● Customize products, services, and messages to each customer
Legal and Ethical Issues
● Marketers must avoid consumer backlash
○ Labeling consumers
17
○ Vulnerable groups
○ Disadvantaged groups
○ Potentially harmful products

18